IMeeting with deputations

The Chairman welcomed the deputations and invited them to state their views on the Administrations latest proposals.

Meeting with the Hong Kong Retail Management Association (HKRMA)

(Submission tabled at the meeting and circulated to members vide LegCo Paper No. CB(1)1754/96-97(03))

2. Mr Philip MA briefed members on HKRMAs submission and highlighted the following salient points -

The fundamental objective of the Bill was to protect copyrights and authors. The Government should intensify its fight against piracy instead of imposing further restrictions on parallel importation of legitimate products. The latter would severely limit consumer choice and substantially increase prices. It would also jeopardise free trade, on which Hong Kongs success had been built.

Parallel importation was a legitimate negotiating tool to protect consumer interests and satisfy demands. Unlike counterfeits, parallel imports were genuine products and as such should not be defined as "infringing copies". The criminal law should apply to counterfeits only.

(Submission tabled at the meeting and circulated to members vide LegCo Paper No. CB(1)1754/96-97(04))

3. Mr MA Fung-kwok and Mr Woody TSUNG briefed members on MPIAs submission. In gist, the position of MPIA was as follows -

MPIA fully supported the Administrations latest proposals. However, with the inclusion of a defence provision for a person who imported a work without the licence of the copyright owner if a particular exclusive licensee had acted unconscionably, i.e. by withholding supply on unreasonable grounds, or by agreeing to supply but on unreasonable terms (the non-availability defence), MPIA considered it necessary to extend criminal sanctions against parallel importation from one to two years.

MPIA, together with the Motion Picture Association (MPA) and the International Federation of the Phonographic Industry (IFPI), represented more than 90% of films and sound recordings. The comprehensive databases developed by them on exclusive licensees for their works would provide adequate information to permit prospective importers to make reasonable enquiries on those categories of works and to discharge their legal obligations.

Clauses 30 and 31 regarding "reason to believe" should remain as presently drafted. MPIA did not agree that these clauses might compromise the interests of the defendant and shift the burden of proof from the plaintiff to the defendant. On the contrary, MPIA felt that the defendant was given an opportunity to raise a particular defence.

4. In response to members queries on the need for two-year criminal sanctions, Mr MA Fung-kwok and Mr Woody TSUNG said that about 85% of films could be released within one year. One year was thus inadequate to protect exclusive licensees and distributors in Hong Kong. Many foreign films would not be licensed for theatrical release in Hong Kong until considerable time, as long as nine or ten months, after their first publication in the country of production. They put forth the following reasons for the long lead time for local release of foreign films -

Interested parties only met at large film festivals such as the Cannes Film Festival to negotiate licensing for less popular films, following their first release. After the signing of an exclusive licence, the licensee needed time to "localise" the film prior to release theatrically or otherwise. Thus, there would be a considerable period of time before an exclusive licensee could begin to exploit the works economically.

From the commercial perspective, negotiations for exclusive licences would start only after completion of a film as potential licensees would need a concrete basis to assess the risk of investment. Moreover, sensible market strategy aimed at releasing films at appropriate time.

Foreign film companies normally scheduled release of their films in Asia including Hong Kong six months after the first release because of their perception of inadequate copyright protection in the region. To mitigate the effect of flow-back, the present trend was to release local films elsewhere before release in Hong Kong, in particular for joint production works with China.

5. Mr MA Fung-kwok further emphasised that non-availability of films should not be a problem. MPIA and MPA together released over 150 foreign films a year, covering most major productions. Many local licensees dealt with "niche films". MPIA always encouraged their members to respond favourably to requests of retailers for supply of versions or formats of a title that were not already available from the exclusive licensee. As for price, this had always been kept at a reasonable level due to keen local competition.

MPIA and MPA could jointly provide information on the status of over 95% of films. Their databases would be updated and easily accessible electronically. In the absence of an exclusive licensee for a particular title, MPIA could assist the prospective importer in negotiating for the exclusive distribution right of that title. The importer might also choose to negotiate for distribution of a title directly. In fact, 20% of MPIA copyright products were released in such a way.

The Administrations proposal to set a time limit for criminal remedies against parallel importation would set a precedent in copyright law. MPIA would not oppose to the provision of the non-availability defence if the criminal protection period was extended to two years.

7. Mr NG See-yuen urged members to consider providing two-year criminal protection for copyright owners. He submitted that the local film industry would be jeopardised by relaxation of control over parallel importation and Hong Kong consumers would be deprived of local film productions eventually.

8. While some members supported MPIAs call for two-year protection, others considered that a long protection period would result in long lead time for local release of foreign films. To promote consumer interests, they urged the film sector to review the theatrical release system to facilitate early local release.

Meeting with HMV Hong Kong (HMV)

(Submission tabled at the meeting and circulated to members vide LegCo Paper No. CB(1)1754/96-97(05))

9. Mr Philip KUNG briefed members on HMVs submission and stressed the following points -

HMV had no intention of infringing copyrights. HMV proposed that the retailer would only be given an importation right temporarily to bring the product into Hong Kong if the local licensee could not supply a copyright product within a certain period of time. This would greatly help HMV in making available old releases to consumers.

HMV would not knowingly engage in any illegal activities in Hong Kong. It called upon the Administration to lay down clear guidelines on the meaning of "reasonable enquiries" to enable the conduct of business within a legal framework.

10. In reply to members questions, Mr KUNG emphasised that HMV was not concerned about the duration of criminal sanctions as sanctions, whether civil or criminal, always existed. HMV considered it most important to allow parallel importation of a product if a retailer had taken reasonable steps to try but failed to meet consumer demands.

11. Ms Anna WU then explained the Committee stage amendments (CSA) proposed by HMV to address the following concerns -

"Unreasonable grounds" and "unreasonable terms" should be defined to provide sufficient guide to the court on the question of unconscionable acts. In determining "unreasonable grounds" and "unreasonable terms", the court should have regard to the reasonable requirements of the particular trade or particular public, including price, delivery time, and trade practices.

In determining whether a person had made or had been able to make reasonable enquiries, the court should consider all relevant circumstances, including whether the person had made any enquiries of a relevant public register or trade body in Hong Kong, and whether he had placed an advertisement in a prominent newspaper stating his interest in the work and intention to import and had allowed a reasonable period of time for response.

The transitional provisions as drafted in the Bill were unclear and should be clarified.

12. In reply to members questions, Ms WU explained that HMV recommended substituting the word "proceed" in new clause 110(1A) with "commence" because the latter could accurately reflect the policy intention that an exclusive licensee might not initiate civil actions against parallel importers alone except under very special circumstances. The proposed drafting would ensure the seeking of the agreement of the owner to join as a plaintiff before the exclusive licensee could file a writ, thus preventing the exclusive licensee from applying for interlocutory injunctions in the process of securing the consent of the owner.

Meeting with KPS Retail Stores Limited (KPS)

(Submission tabled at the meeting and circulated to members vide LegCo Paper No. CB(1)1754/96-97(06))

13. Mr Garrie ROMAN briefed members on KPSs submission. Whilst expressing support for the Administrations latest proposals, he opined that the draft CSAs should place more emphasis on right holders making information available to importers. He echoed HMVs points and stressed that the Bill should aim at achieving clarity and balance. He referred members to the proposed CSA at Annex to KPSs paper and submitted that by specifying the relevant circumstances to which the court should have regard in determining whether a person had made "reasonable enquiries sufficient to satisfy himself" or had "reasonable grounds to be satisfied" within the meaning of clause 30, all parties could know for certain when and whether an infringement took place.

Meeting with the International Federation of the Phonographic Industry (IFPI)

(Submission tabled at the meeting and circulated to members vide LegCo Paper No. CB(1)1754/96-97(07))

14. Mr GIOUW Jui-chian briefed members on IFPIs submission and emphasised that the Bill should provide adequate protection for copyright owners and introduce effective enforcement measures. Importation right was crucial for the survival of the record industry. The proposal to incorporate a defence provision for parallel importation into the Bill should be considered carefully as this might render the importation right unenforceable. In reply to the Chairmans question, Mr GIOUW stated that if all reasonable steps had been taken by retailers, members of IFPI would accept non-availability as a defence for parallel importation.

15. Mr Ricky FUNG drew members attention to the fact that the majority of parallel imports were best sellers readily supplied by the exclusive licensees. Some were local productions the supply of which had never been a problem. He cautioned that as copyright protected brainworks and not the format in which the work was manifested, non-availability of certain versions must not be used as an excuse for parallel importation.

Meeting with the Motion Picture Association (MPA)

(Submission tabled at the meeting and circulated to members vide LegCo Paper No. CB(1)1754/96-97(08))

16.Mr Jeffrey HARDEE briefed members on MPAs submission and highlighted the following salient points -

"Reason to believe" was not a novel legal concept. There was no need to include detailed guidelines on its meaning. However, MPA agreed that should such guidelines be inserted, they should not be absolute.

MPA did not object to the introduction of a provision on groundless threats, although the proposed wording needed refinement.

MPA agreed to eliminating the ability of an exclusive licensee to add the copyright owner as a defendant even though this was a right enjoyed by an exclusive licensee under the existing copyright law.

MPA considered it necessary to have a two-year criminal sanction period to protect the film industry in Hong Kong.

17. Mr HARDEE further stated that to help address retailers concern over identification of exclusive licensees, MPA would ensure that their database and referral service would assist retailers in finding out whether there was an exclusive licensee in Hong Kong for a particular title. MPAs member companies would also be responsive to enquiries for information necessary to confirm their rights. As regards supply, MPAs member companies were already committed to supplying to the Hong Kong market a wide selection of videos in various formats. MPA would further encourage them to respond favourably to requests from retailers for supply of versions of a title that were not already available from the exclusive licensee, for example, by consenting to the importation of the version for the retailer.

18. Mr Jared MARGOLIS supplemented that "reason to believe" was central to the common law. It was a workable standard requiring retailers to exercise due diligence in ascertaining whether there was an exclusive licensee.

19. On HMVs proposed clause 31(5), which listed the factors to which the court should have regard in determining "unreasonable grounds" and "unreasonable terms", Mr HARDEE commented that MPA considered this unnecessary and undesirable for three reasons. Firstly, non-availability was not an issue as MPA had not denied consumers access to products and was ready to help supply formats that were not available locally. Secondly, the proposed clause would require the court to examine contractual details. Thirdly, the requirement for fulfillment of orders within five working days was unreasonable. The licensees should have the power to determine the time for release. MrGIOUW echoed Mr HARDEEs points and said that it was unreasonable to impose any limitation on the copyright owner on use of the work.

20. Ms Anna WU clarified that in drafting the proposed clause 31(5), she had referred to the Unconscionable Contracts Ordinance (Cap. 458), which provided for examination of contractual terms by the court under certain circumstances. There was a need to examine facts relating to ownership of copyright vis-a-vis ownership of property. Once a genuine product was licensed for sale, it was difficult to stop the onward sale of it. Mr Philip KUNG supplemented that the current overseas delivery time was five working days, hence the adoption of this timeframe for fulfillment of orders.

21. As regards HMVs proposed CSA to specify factors to which the court should have regard in determining whether a person had made reasonable enquiries, Mr HARDEE and Mr GIOUW opined that although the listed factors were not absolute, they were too detailed and some information required was trade secrets. Mr ROMAN agreed with MPA and IFPI on this point and said that confirmation of exclusive rights should be in the form of a statement listing the kind of rights owned, formats and languages of licensed copies, etc.

IIMeeting with the Administration

22. The Director of Intellectual Property welcomed the agreement reached by the trade on the issue of parallel importation. He appreciated the facts that on the one hand, the local industries acknowledged the need for providing timely and adequate information to help retailers ascertain the existence of an exclusive licensee for a particular copyright article. On the other hand, retailers clearly recognised that they had to make reasonable enquiries and take reasonable steps to ascertain the status of a copyright product before they could deal with it.

23. To consider the Administrations updated draft CSAs in response to the discussions at the meeting on 29 May 1997 and conclude deliberations on the Bill, members agreed to hold one more meeting on 3 June 1997 at 12:30 pm.